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Posted Date: January 31, 2020

MARC has affirmed its ratings on Berjaya Land Berhad's RM500.0 million Medium-Term Notes (MTN) Programme guaranteed by Danajamin Nasional Berhad (Danajamin) at AAA(fg) and RM150.0 million MTN Programme guaranteed by OCBC Bank (Malaysia) Berhad (OCBC Malaysia) at AAA(bg). The ratings outlook is stable. The ratings reflect the unconditional and irrevocable guarantees provided by Danajamin and OCBC Malaysia. Danajamin carries a financial insurer rating and counterparty rating of AAA/Stable while OCBC Malaysia has a financial institution rating of AAA/Stable based on public information.

BLand is an intermediate investment holding company of Berjaya group with interests in gaming, motors, properties, hotels and recreation. Its credit profile, however, remains weighed down by a challenging domestic property market, sizeable debt obligations and modest earnings from non-gaming subsidiaries. At the holding company level, dividend upstreamed has been insufficient to meet its high financing cost, relying heavily instead on proceeds from asset disposals and refinancing to address its financial obligations. Its holding company borrowings stood at about RM1.1 billion, of which RM500 million remains outstanding under the rated MTN programme as at end-June 2019 (FP2019).

The group's domestic property developments are largely in the Bukit Jalil vicinity in Kuala Lumpur and Georgetown in Penang, and comprise properties priced from mid- to high-end. The group had reduced its launches in recent years due to weak property market sentiment, which has led to a sharp decline in revenue in FPE June 2019. However, in 1Q2019, it launched the Tropika mixed development project in Bukit Jalil with a gross development value (GDV) of RM813 million. Including this project, the GDV of its ongoing domestic projects was RM1.3 billion. BLand has only two ongoing projects abroad, both in Vietnam with a combined GDV of RM363.6 million. Almost all of the units launched under these projects - the Topaz Twins residential development in Ho Chi Minh City and the Hanoi Garden City township - have been sold.

Its gaming subsidiary, Berjaya Sports Toto Berhad (BToto) continues to dominate the group's consolidated financial performance, historically accounting for more than 90% of BLand's operating profit. BToto's key subsidiary, Sports Toto Malaysia Sdn Bhd is a leading domestic player in number forecast operations, generating strong operating cash flows, averaging around RM286.0 million p.a. over the last five years. BLand's motor retailing business undertaken by H.R. Owen is characterised by thin operating margins. In respect to its hotel and resort division, BLand has disposed its entire stake in a hotel in Hanoi in December 2018, resulting in a gain of RM195.7 million. Additionally, BLand has completed the disposal of its entire 70.0% stake in Long Beach Phu Quoc Resort in Vietnam for RM65.3 million in June 2019.

For FYE 2019, BLand's consolidated revenue stood at RM7.3 billion. Pre-tax profit rose sharply to RM546.4 million, largely attributed to a gain from the disposal of the hotel in Hanoi during the period. Consolidated group borrowings stood at RM3.0 billion as at end-September 2019, declining from RM3.4 billion as at end-April 2018. At the holding company level, revenue, which comprised entirely of dividend income, stood at RM31.9 million with pre-tax losses of RM93 million due to high finance costs.

Over the next five years, BLand expects to receive about RM1.5 billion in proceeds, largely from foreign asset disposals; nonetheless, BLand has historically faced delays in completing its asset disposals partly due to cross-border issues. Should BLand's planned asset disposals be met with delays, it would have to refinance the bulk of its scheduled obligations, most of which are secured against various property assets.

Notwithstanding BLand's standalone risk factors, noteholders are insulated from BLand's standalone credit profile by the guarantees provided by Danajamin and OCBC Malaysia. Any change in the supported ratings or ratings outlook would be primarily driven by changes in the credit strength of the guarantors.

Contacts:
Raj Shankar, +603-2717 2956/ rajshankar@marc.com.my;
Taufiq Kamal, +603-2717 2951/ taufiq@marc.com.my.

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